People are beginning to acknowledge that while Social Security is a serious long-term problem Medicare (and our whole health care system) is a more serious problem that’s significantly closer at hand. Steve Verdon writes:
Kevin [ed. Drum] has a sort, kinda decent post on the problems of Social Security and the undiscussed problem of Medicare. He is right in that Medicare is much, much bigger problem. Right now, if you believe the research of Gokhale and Smetters, the U.S. faces deficits of about $44 trillion dollars over the next 75 or so years. About $7 trillion is Social Security and the remaining $37 trillion is Medicare. Or Medicare is about 5 times the size of the Social Security problem.
The solution is that we need to bring more market incentives to bear on the problem. Right now Medicare recipients basically have a gigantic subsidy for consuming health care resources. This subsidy basically means that they will consume alot. This in turn drives up the price for everybody else. Throw in the fact that purchasing insurance when you are young, health and have few or no assets is a sucker’s game and you have a recipe for spiralling out of control health care costs.
That’s a good succinct description of half of the problem. It’s not just consumers who are being subsidized: health care providers are receiving enormous subsidies in the form of licensing, patents, and the physicians’ monopoly on prescribing medication. The effect of these subsidies is to artificially constrain supply which also raises costs.
Does anyone have some actual evidence that it’s excess demand that’s causing costs to rise rather than insufficient supply? I, for one, don’t know anybody who goes to the doctor unless they’re sick. Quite the contrary. I know a lot of people who don’t go to the doctor even when they are sick.
I’m far from being a kneejerk believer in government solutions for every earthly ill. But I do believe that government does have a legitimate role. And perhaps the most legitimate case for government action is to offset the negative effects of other government action. And in health care the government has been acting with a vengeance since the Pure Food and Drug Act of 1906 almost a hundred years ago.
Since the enactment of Medicare almost forty years ago the government has been throwing money at physicians. And physicians have been prudent enough to catch it. Since 1965 doctors’ salaries have risen significantly faster than inflation and faster than the salaries of other professionals (admittedly less rapidly in recent years). It seems to me more than conceivable that a good part of that difference is due to the physicians’ monopoly and barriers to entry i.e. restricting supply.
So if you advocate a market solution for the problems in health care, please remember both the supply and the demand side of the equation. Otherwise you’re not arguing for a market solution at all.
